The second member of the Lucaogou Formation (P₂l₂) in the Tiaohu and Malang Sags of the Santanghu Basin (study area) underwent periodic volcanic activity and frequent lithological changes. This study comprehensively analyzed the organic geochemistry, mineral composition, organic matter (OM) types, volcanic cycle, and palaeoenvironment of shale in the study area. Techniques such as total organic carbon (TOC), rock pyrolysis (Rock-Eval), organic petrology, scanning electron microscopy (SEM) with energy-dispersive spectrum (EDS) analysis, X-ray diffraction (XRD), trace elements, and saturated hydrocarbon gas chromatography and mass spectrometry (GC-MS) were employed. The findings suggest that limited terrigenous input during the sedimentary period of the P₂l₂ led to the deposition of a distinctive mixture of volcanic ash (felsic) and carbonate (dolomite and calcite), with a low average clay mineral content of 6%. The P₂l₂ shale emerged as a high-quality source rock, predominantly composed of type I and II kerogens, with moderate OM maturity. The deposition environment was characterized by hot and arid conditions, high salinity, and intensive reducibility, which was favorable for algae development and conducive to OM preservation. Notably, two lamalginite types, labeled as lamalginite “A” and lamalginite “B,” were identified. Lamalginite “B”-rich shales were deposited in a hotter and drier climate compared to lamalginite “A”-rich shales. Lamalginite “B”- rich shale inexhibited high levels of C₂₈ regular sterane and β-carotenes, distinguishing it from lamalginite “A”-rich shale. A comprehensive analysis involving organic petrology, SEM, sedimentary environment, and biomarker characteristics suggests that lamalginite “B” may be a salt-tolerant green alga, while lamalginite “A” may be a cyanobacterium. Finally, an OM enrichment model for the P₂l₂ shale was established.